Foreign portfolio investors (FPIs) have made a net investment of Rs 2,743 crore in the Indian equity markets, signaling a return to the market. Despite this positive development, overall net investments by FPIs for the month of June remain negative, standing at Rs 3,064 crore. This negative trend follows a period of significant sell-off by foreign investors in response to the announcement of election results. However, with the Modi 3.0 government now in charge, confidence seems to be returning to the Indian market.
The first week of June saw extreme volatility in FPI flows, influenced by exit polls and actual election results. On June 3rd, FPIs made substantial equity purchases of Rs 6,521 crore following optimistic exit poll results. However, the actual election results fell short of expectations, leading to a sharp market downturn on June 4th. In response, FPIs offloaded stocks worth Rs 12,259 crore. The market has since stabilized, with the India VIX falling from 27 on June 4th to 12.82 on June 14th, indicating a return of stability and a likely consolidation phase in the market.
The resilience of the Indian market and the enthusiasm of retail investors to capitalize on market dips have put pressure on FPIs to slow down their selling, which was prevalent throughout May. Indian markets are showing signs of recovery and stability, supported by retail investor activity and a favourable political climate under the new government. In May, FPIs sold equities worth Rs 25,586 crore, continuing a pattern of sustained and excessive selling in the cash market for the year 2024 so far, FPIs have divested equity worth Rs 26,428 crore. Despite this, there has been considerable selling through exchanges while simultaneously buying through the primary market route.
The behaviour of FPIs will be a critical factor to watch in the coming weeks, as their investment strategies will significantly impact market dynamics. If the market continues to rally, FPIs may turn sellers in India and buyers in other markets like Hong Kong, which are comparatively cheaper. The return of stability and consolidation in the market bodes well for a more positive investment climate in the coming months.
Overall, the recent return of FPIs to the Indian equity market, coupled with retail investor activity and a favourable political climate, suggests that the Indian market is in a phase of recovery and stability. The selling off by FPIs in previous months has put pressure on them to slow down their selling, as retail investors capitalize on market dips. Moving forward, FPIs’ investment strategies will play a significant role in shaping market dynamics, particularly in response to market rallies and potential shifts in investment priorities.
